Impact of Excise Duty on Gross Domestic Product in Tanzania

ABSTRACT:This study investigated the impact of excise duty on Gross Domestic Product (GDP) in Tanzania using annual time-series data from the 2011/12 to 2023/24 fiscal years. Excise duty, a tax levied on specific goods such as alcohol, tobacco, and fuel, serves as both as a revenue generation mechanism and a tool for economic regulation. The study employed a log-linear Ordinary Least Squares (OLS) regression model to examine the long-run relationship between excise duty and GDP. The results revealed a strong and statistically significant positive relationship, indicating that a 1% increase in excise duty revenue is associated with a 0.72% increase in GDP. This finding highlighted the important contribution of excise taxation to macroeconomic performance in Tanzania. The positive elasticity and significant effect (p<0.05) underscore the role of excise duty not only in financing government expenditure but also in supporting economic growth by providing a stable and predictable revenue stream. The results were consistent with international evidence on the effectiveness of excise taxation in driving fiscal outcomes and economic development. Based on these findings, the study recommended strengthening excise tax policy through rate adjustments that reflect inflation and economic shifts, improving tax administration, and ensuring that excise revenue is allocated effectively to priority sectors. The study offered valuable insights to policymakers and fiscal authorities aiming to optimize domestic revenue mobilization while promoting sustainable economic growth.